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Trial Court Dismisses Georgia Patronage Capital Lawsuits

May 5, 2016 | Authors: Thomas M. Byrne; James A. Orr

Law Firm: Eversheds Sutherland (US) LLP - Atlanta Office

On May 2, a trial court in DeKalb County, Georgia, dismissed two class action patronage capital lawsuits filed against Oglethorpe Power Corporation, Georgia Transmission Corporation (GTC) and certain distribution electric membership corporations. One lawsuit (Walker v. Oglethorpe Power Corp., et al., Civ. Action No. 14CV2932-8) was filed on behalf of former members of Walton EMC, Jackson EMC and Sawnee EMC. The other suit (Shapiro v. Oglethorpe Power Corp., et al., Civ. Action No. 14CV8323-8) was filed on behalf of current members of Walton EMC and Jackson EMC. The cases were assigned to a special master appointed by the trial court. In lengthy recommended orders, the special master concluded that all claims against all defendants should be dismissed for lack of standing and failure to state a claim. The trial court agreed, and affirmed and adopted the special master’s proposed orders in full.

In both cases, the plaintiffs challenged the patronage capital distribution practices of the defendants. The Walker plaintiffs claimed that the defendants were required to distribute patronage capital immediately when consumer-members terminated service, or alternatively, according to a revolving schedule of no longer than 13 years from the date of allocation. The Shapiro plaintiffs claimed that the defendants should retire patronage capital according to a fixed schedule. The plaintiffs asserted claims based on a variety of legal theories, including alleged violations of the EMC enabling act, breach of contract, unjust enrichment, breach of fiduciary duty, money had and received, conspiracy, conversion, and breach of the implied obligation of good faith. They asserted claims against both the distribution EMCs of which they were members and against Oglethorpe Power and GTC, which provide wholesale generation and transmission services to the distribution EMCs, respectively.

The court first ruled that the plaintiffs had no standing to sue either Oglethorpe or GTC. Based on the allegations of the complaints, the court concluded that the plaintiffs were never members of either entity. Instead, they were members of the distribution EMCs. Also, when Oglethorpe and GTC allocate patronage capital, it is allocated to the accounts of the distribution EMCs, not to the customers of those EMCs, such as the plaintiffs. Once patronage capital is distributed to the distribution EMCs, those EMCs decide if, when and how to distribute patronage capital to their current or former members, such as the plaintiffs. Based on these undisputed facts, the court held that the plaintiffs had no standing to sue Oglethorpe or GTC. Because the joinder of Oglethorpe and GTC was the sole basis for venue in DeKalb County, the dismissal of those defendants meant that venue evaporated for the other defendants.

The court further held that even if the plaintiffs had standing, their claims should be dismissed for failure to state a claim. The court dismissed the statutory claims because nothing in the EMC enabling act requires EMCs to distribute patronage capital to current or former members. The act simply provides that EMCs should address the allocation and disposition of revenues in their bylaws, which all defendants did. The court dismissed the breach of contract claims because the defendants’ bylaws, on which the contract claims were based, simply state that patronage capital “may be retired” when the financial condition of the EMC will not be impaired thereby. There is no requirement to retire patronage capital as claimed by the plaintiffs. The court also rejected the plaintiffs’ argument that “cooperative principles” somehow imposed a mandatory obligation on the defendants to distribute patronage capital. All other claims of the plaintiffs were separately addressed and dismissed.

The trial court’s orders were issued on May 2, 2016. The plaintiffs have 30 days to appeal.

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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